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It is of course fair enough that a producer looks at economic matters through the lens of a producer. We're all prone to seeing the world through our own experience. However, we really shouldn't let people get away with that, not if their specific vision is at odds with what we actually want to achieve in an economy. And whether something aids one specific producer or not just isn't the right metric by which to judge something. Instead, we want to know whether something benefits consumers; what happens to the producers is very much a second, even third, order concern. This is also true of things like competition; yes, we do usually conclude that more competition is better for consumers. But even that's not a slam dunk; things need to be evaluated upon whether they are better for consumers, not rather more sloppily by just assuming that more competition is better for consumers. That is the way to bet, but as above it's not a slam dunk.

Making a strong pitch for more competition in offering internet services, Vodafone Group chief Vittorio Colao has spoken his mind on Facebook's Free Basics, saying it was helping just "one dominant player" in India.

That producers benefit from something, that one producer benefits more than others, is a near irrelevance to our economic consideration of whatever it is that is going on. What we want to know is whether this benefits consumers. My own view, well known on these pages, is that free access even to a walled garden version of the Internet is of benefit to consumers who otherwise could not get online. Thus it's a good thing. Others disagree with me, and that's just fine. The insistence here is not that Free Basics is a good or a bad thing. Only that it is the effect upon consumers which will decide whether it is or not. Adam Smith pointed this out: the point and purpose of all production is consumption. How well the producer does out of it is an irrelevance as far as we are concerned. Frederic Bastiat went on to point out that we must regard all economic questions from the viewpoint of consumption. Who is producing, how well they're doing by doing so, how they're producing--these aren't things we should care about all that much if at all. Rather, who gets to consume what? Increasing consumption opportunities is the determinant of whether something is a good idea.

Please note again that it's entirely possible, as many have done, to construct arguments that Facebook's activities here are damaging to future consumption, through that violation of net neutrality. Again, I'm not trying to reopen that argument, only to insist that it is consumption possibilities which have to be our measurement metric.

Earlier this month, Facebook shut down the controversial program after a Trai directive to this effect. “The important thing for me is always to preserve fairness as you know we were not part of the Facebook experiment… I had always said I found that model was disproportionately helping one already dominant player. So to me, rather than saying this model is good, this is bad, it’s really to say which model allows more competition, more services,” Colao said.

We do indeed generally say that more competition is good for consumers. But that's a shorthand; it is generally good but that's not the end of the argument. For example, some part of Paul Krugman's new trade theory (largely what got him his Nobel) examines the case of when a global monopoly is the efficient size for a firm. There it's a bit more difficult, because of course we want efficiency and we normally think that it's competitive pressure that leads to that efficiency over time. But if the efficient size of the firm is monopoly (another way of stating that economies of scale continue to rise to that global scale) then competition is actually reducing efficiency. No, I don't say that Internet access is likely to be efficient at that global level although the strong network effects of Facebook itself might just about qualify (although I don't state that they do). This is just an example of the point that competition, in and of itself, is not the thing we desire in an economic sense. Again, it's the maximization of consumption opportunities which we do desire. Competition usually leads to that, although there are times and technologies when this isn't true. We cannot thus insist that more competition is better.

We can, of course, insist that more competition must be possible. Because this is the best way of testing whether the monopolistic supplier is in fact efficient. Thus we must insist that competition always be possible. But the absence of it could be that the monopolistic supplier is the efficient form.

Thus we must disagree with the Vodafone CEO. That Free Basics system (again, that India has rejected it is just fine by me. I disagree, but it's their country, not mine) should not be measured by whether it increases or restricts competition, nor by whether it aids only one dominant supplier. Our interest in everything is whether something increases consumption opportunities. It could well be that the answer is the same in the end: no, we don't want to do that. But every economic and public policy question must be using the right system of measurement. And that's consumption, only consumption and only ever consumption possibilities.